General Dynamics (GD) Q3 2026 Earnings Call Transcript

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DATE

Oct. 30, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations - Nicole Shelton
• Chairman and Chief Executive Officer - Phebe Novakovic
• President - Danny Deep
• Chief Financial Officer - Kimberly Kuryea

TAKEAWAYS

• Revenue -- $14.6 billion, representing 12.9% growth driven by volume increases across all four business segments.
• Diluted EPS -- $4.49, a 15.7% increase from the prior-year quarter reflecting improved operational performance.
• Operating Margin -- 10.5%, a 20 basis point improvement over the year-ago period due to productivity gains in Aerospace and Marine.
• Backlog -- $220.3 billion, representing a 100.6% increase versus last year following record orders in the Marine Systems segment.
• Marine Systems Orders -- $71.6 billion, including $29.5 billion for five Columbia-class submarines and $42.1 billion for nine Virginia-class submarines.
• Operating Cash Flow -- $1.7 billion, representing 139% of net earnings for the quarter.
• Free Cash Flow -- $1.2 billion, yielding a cash conversion rate of 100% for the quarter.
• Aerospace Revenue -- $3.5 billion, up 9.3% reflecting higher Gulfstream deliveries and robust aircraft services volume.
• Marine Systems Revenue -- $5 billion, a 21.1% increase driven by construction volumes for the Columbia, Virginia, and DDG 51 programs.
• Technologies Revenue -- $3.7 billion, up 10.8% with General Dynamics Information Technology leading the segment growth.
• Combat Systems Revenue -- $2.4 billion, up 6% driven by international vehicle demand and munitions growth at Ordnance and Tactical Systems.
• Total Estimated Contract Value -- $270.7 billion, comprising firm backlog and $50.4 billion in unexercised options and IDIQ contracts.
• Aerospace Book-to-Bill -- 1.4x, reflecting sustained demand across the Gulfstream product line with new aircraft orders up 30% year to date.
• Full-Year EPS Guidance -- $17.20 to $17.30, raised from the previous range of $16.80 to $16.90.
• Full-Year Revenue Guidance -- $56.5 billion to $56.8 billion, representing an upward adjustment based on third-quarter performance.
• Net Interest Expense -- $45 million, down from $74 million in the year-ago quarter due to increased interest income on higher cash balances.
• Net Debt -- $2.6 billion, representing a $3 billion improvement from the end of fiscal 2025.
• Capital Expenditures -- $481 million in the quarter, with full-year expectations between 3.5 to 4% of total sales.
• Gulfstream Deliveries -- 40 aircraft, consisting of 35 large-cabin and five mid-cabin units.
• Pension Contribution -- $500 million, a voluntary payment that essentially funded the company's frozen plans and reduced future volatility.
• European Land Systems Revenue -- Up 28%, driven by demand for the Piranha platform and Eagle family of vehicles.
• Defense Segment Book-to-Bill -- 8.5x, reflecting the significant impact of major submarine contract awards.

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RISKS

• Novakovic warned that while customer interest in the Middle East remains active in the pipeline, the regional geopolitical environment has slowed the conversion of that interest into firm aircraft orders.
• Novakovic noted a "110 basis point contraction in operating margin due largely to a transition from legacy production programs to new development programs at Land Systems," impacting Combat Systems profitability.

SUMMARY

General Dynamics Corporation (NYSE:GD) reported third-quarter results featuring double-digit growth in revenue, operating earnings, and diluted earnings per share. Management reported record backlog levels following significant contract awards in the Marine Systems segment for Columbia and Virginia-class submarines. The company increased full-year 2026 guidance for both revenue and earnings per share based on performance across all segments. Strategic focus remains on increasing shipyard throughput at Electric Boat and managing the transition to new development programs within the Combat Systems division. Capital allocation during the quarter included debt reduction, a voluntary pension contribution, and continued investment in manufacturing capacity.

• President Deep stated, "Our intent is to deliver 200 aircraft in 2030," noting that the company has the facilities and workforce necessary to meet this target.
• Deep indicated that Gulfstream G300 certification is expected toward the end of next year, with deliveries to follow.
• Management reported that Electric Boat expects to have 8,000 new shipbuilders by the end of the year to support the current production ramp.
• Deep noted that the company serves as a subcontractor to multiple missile primes, providing motor cases, actuators, and guidance system components.
• CEO Novakovic stated that the 15-year strategic plan to invest in clean-sheet aircraft designs has successfully driven demand by meeting customer needs for speed and efficiency.
• Management indicated that Marine Systems margins are expected to baseline in the mid-7% range as the group improves performance and output beyond the Virginia Block IV cumulative catch-up.

INDUSTRY GLOSSARY

• MRO: Maintenance, Repair, and Overhaul services for aircraft.
• FBO: Fixed-Base Operator, a commercial entity providing support services to general aviation at an airport.
• IDIQ: Indefinite Delivery, Indefinite Quantity contracts, which provide for an indefinite quantity of services during a fixed period.
• VPM: Virginia Payload Module, a modification to Virginia-class submarines to increase missile-strike capacity.
• GDIT: General Dynamics Information Technology, a business unit within the Technologies segment focused on IT services.
• ELS: European Land Systems, a business unit within the Combat Systems segment.
• OTS: Ordnance and Tactical Systems, a business unit within the Combat Systems segment.

Full Conference Call Transcript

Operator: Good morning, and welcome to the General Dynamics Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations. Please go ahead.

Nicole Shelton: Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Third Quarter 2026 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Danny Deep, President; and Kim Kuryea, Chief Financial Officer.

I will now turn the call over to Phebe.

Phebe Novakovic: Thank you, Nicole. Good morning, everyone, and thanks for being with us. For those of you who are on our second quarter call, you may recall that we described it as a superb quarter, better than a powerful first quarter. While this quarter is even better, the quarter over year ago quarter results, the sequential results and the year-to-date results are all very good as you will learn from these remarks and the charts attached to our press release. So, now let's proceed to the more prosaic. We reported earnings of $4.49 per diluted share on revenue of $14.57 billion, operating earnings of $1.527 billion and net earnings of $1.229 billion. Against the year ago quarter, revenue was up 12.9%.

Importantly, operating earnings are up 14.7% and net earnings are up 16.1%. As a result, earnings per diluted share are up $0.61 or 15.7%. The operating margin for the entire company is 10.5%, a 20 basis point improvement over the year ago quarter, which coupled with the revenue growth led to the very strong earnings growth. While Marine led the way on revenue increases, each of our other 3 segments had revenue increases as well. With respect to operating earnings, Aerospace and Marine led the way with strong double-digit increases as each of our shipyards has steadily improved its throughput and productivity.

Sequentially, against a superb second quarter, revenue was up 3.3%, operating earnings are up 4.6% and diluted earnings per share are up about 6%. On a year-to-date basis, revenue is up 10.4%, operating earnings are up 12.9% and earnings per share are up 13.6%, benefited by a 30 basis point improvement in operating margin. In short summary, we enjoyed double-digit increases in revenue, operating earnings, net earnings and diluted earnings per share on both a quarter-over-quarter and year-to-date basis. We also beat consensus by $0.37 in the quarter on more revenue and operating earnings than anticipated by the sell side. In short, it is a splendid quarter.

Year-to-date figures leave us in a place where we need to adjust our forecast for the year. I will do that later in these remarks. Let me ask our CFO, Kim Kuryea, to provide detail on our strong order activity, rapidly growing backlog and continued efficient cash generation as well as other relevant financial data.

Kimberly Kuryea: Thank you, Phebe, and good morning. I'll start with orders and backlog, where we had a truly historic quarter. Nearly $99 billion in new orders drove our backlog to a record $220 billion, doubling the level of a year ago. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at $271 billion. These results reflect the strength of demand across our businesses. The Marine Systems segment led the way with significant contract awards at Electric Boat, including $29.5 billion for 5 additional Columbia-class submarines in Build 2 and $42.1 billion for 9 additional Virginia-class submarines in Block VI.

In our Technologies segment, book-to-bill was a strong 1.4x and Combat was just shy of 1:1 following a very strong second quarter. Overall, the Defense segment book-to-bill was 8.5x. In Aerospace, our dollar-based book-to-bill was 1.4x and even higher for Gulfstream alone. To give you some perspective, new aircraft orders in the first 9 months of 2026 were up over 30% from last year, demonstrating sustained demand across the entire Gulfstream product line. Turning to cash. Our performance continues to be outstanding. We generated $1.7 billion of operating cash flow, which, when combined with the strong $4 billion from the first half, yields over $5.7 billion of operating cash flow in the first 9 months of the year.

Each of our segments contributed nicely, exceeding their planned cash flows and driving operating working capital down nearly $1.7 billion from the end of 2025 despite an increase in revenue of over 10%. As I mentioned on the July call, we contributed $500 million to our pension plans in the quarter. With this voluntary contribution, our frozen plans are essentially funded, and we are now in a position to derisk the plans and eliminate significant volatility going forward to control the pension costs flowing to our contracts. Capital expenditures were $481 million in the quarter, more than the total amount in the first half of the year. In the first 9 months of 2026, capital expenditures were 2.2% of sales.

We continue to expect capital expenditures between 3.5% and 4% of sales for the full year. So, you should expect a fourth quarter of significant growth as we close out the year and continue to invest, especially in our shipyards to accelerate production and meet future demand. Even with this ramp-up in investment and our pension contribution, our free cash flow performance has been exceptional. We generated $1.2 billion for the quarter, yielding a cash conversion rate of 100% and $4.8 billion for the first 9 months, an impressive 137% of net earnings.

We continue to expect free cash flow conversion at around 105% for the year with the potential for some upside depending on the pace of capital projects in the fourth quarter. Finally, to round out the cash discussion. From a capital deployment perspective in the quarter, we paid dividends of approximately $430 million and repurchased about $285 million of our common stock to cover estimated dilution. We repaid $500 million of notes that matured in August after previously repaying another $500 million of notes in June. Our balance sheet remains strong. We ended the quarter with a cash balance of approximately $4.4 billion and a net debt position of $2.6 billion, a $3 billion improvement from year-end. Turning to interest.

Our net interest expense in the third quarter was $45 million compared to $74 million in the respective 2025 period and $163 million for the first 9 months of 2026 compared to $251 million in the same period of 2025. The decrease in our net interest expense is due to more interest income on higher cash balances throughout 2026, allowing us to avoid the commercial paper borrowing costs that we incurred in 2025. We have not been in the commercial paper market at all thus far in 2026. At this point, our expectation for net interest expense for the year is approximately $215 million.

Finally, the effective tax rate in the quarter was 17.3%, bringing the tax rate for the first 9 months of 2026 to 17.6%. In summary, it was another outstanding quarter. Phebe, that concludes my remarks. I'll turn it back over to you.

Phebe Novakovic: Thanks, Kim. Now I will briefly review the financial performance for each of the groups, and Danny will interject additional detail. First, Aerospace. Aerospace had a very good quarter with revenue of $3.54 billion and operating earnings of $513 million with a 14.5% operating margin. Revenue is $302 million more than last year's third quarter, a 9.3% increase. To give you a sense of perspective here, Gulfstream new aircraft revenue is up on the delivery of 1 more aircraft, 40 in total and a slightly more favorable mix. We also saw good revenue increases in aircraft services at Gulfstream as well as at Jet Aviation across the portfolio.

Operating earnings of $513 million are up $83 million, driven in part by the increased revenue, but most importantly, by a 120 basis point improvement in operating margin.

Danny Deep: At Gulfstream, we continue to see efficiency gains in manufacturing and completions, particularly on the G700 and G800. For the G800, we've delivered only our 33rd aircraft in this quarter. And although it's relatively early since its entry into service, performance on that airplane has been very strong with additional opportunity ahead of us. Services have also been a highlight this quarter, continuing to grow as the fleet expands. We saw increases in volume at our MRO centers and at Jet Aviation, activity at our U.S. FBOs was particularly robust.

Phebe Novakovic: Turning to market demand. Aerospace had a 1.4x book-to-bill in the quarter. There were 5 more airplane orders than the year ago quarter. The book-to-bill over the trailing 12-month basis is 1.4x. So, we see very active interest across all models in the U.S., Western Europe and Southeast Asia, with some cautious concern from customers in the Middle East. They are, however, still active in the pipeline, but slow to provide orders. This is not surprising given the current geopolitical environment there. In summary, the Aerospace team had a special quarter, both operationally and in terms of order activity. So, let's move on to the defense businesses. First, Combat.

Combat Systems had revenue of $2.39 billion, up 6% over the year ago quarter. Earnings of $330 million are down $5 million on a 110 basis point contraction in operating margin due largely to a transition from legacy production programs to new development programs at Land Systems. Earnings were up nicely at Ordnance and Tactical Systems as well as European Land Systems. Sequentially, revenue was up 4.2% and earnings were up 3.8%. Demand for Combat Systems products is strong, primarily driven by U.S. allies. Orders for wheeled and tracked vehicles are up, reflecting the increased threat environment. In addition, Ordnance and Tactical Systems continues to have particularly strong growth in munitions.

Danny Deep: As Phebe mentioned, our international vehicle portfolio and particularly our European operations continue to perform well and are a big part of the growth story in that segment, with ELS revenues up 28% versus a year ago quarter. Demand for the Piranha platform and Eagle family of vehicles continues to be strong across several markets. At Ordnance and Tactical Systems, we are doing our part to support the missile ramp, while at the same time, we have seen solid growth for both medium and large caliber munitions as well as propellants, all areas where we have traditionally performed very well.

Phebe Novakovic: Turning to Marine Systems. Once again, our shipyards are each demonstrating strong revenue growth on a quarter -- over year ago quarter basis. This year's quarter's revenue growth of 21% was driven by Columbia and Virginia-class construction volumes, followed by DDG 51 and T-AO construction volumes. The growth at Bath for the fifth quarter in a row is particularly encouraging. Earnings improved 34.4% on an 80 basis point improvement in operating margins. We can point to clear measurable productivity gains at Electric Boat, particularly significantly increased earned hours in both the second and third quarters of the year. As you know, to support this growth, we have made significant investments in each of our shipyards, particularly at Electric Boat.

We will continue to invest as we move forward to support the additional demand we see in the national security interest of the United States.

Danny Deep: As Phebe pointed out, we experienced increased throughput at all of our shipyards, all leading to the primary goal of delivering more ships faster. We are making good progress on that front. The last Block IV Virginia-class submarine will be delivered in the next few months. And upon delivery, Electric Boat will have delivered 5 Virginia-class submarines in 5 years. All 12 Block V Virginia ships and all Columbia Build 1 ships are in various stages of construction. We continue to be hyper-focused on delivering the first Columbia and first Virginia VPM ships by the end of 2028. Finally, on the most recent Virginia and Columbia awards, we are procuring long lead items and have started subassembly construction.

Phebe Novakovic: Turning to Technologies. This group is also experiencing growth in revenue and earnings, albeit not at the pace experienced by Aerospace and Marine. Revenue of $3.7 billion represents an increase of 10.8% over the third quarter of 2025. Both businesses contributed respectable growth, but GDIT led the way. Operating earnings of $346 million are up 5.8% over the year ago quarter. Operating margin decreased 40 basis points, largely as a result of mix shift. Sequentially, we saw some incremental gains in both revenue and earnings. On a year-to-date basis, we had revenue growth of 6.3% and earnings growth of 3.7%, all very respectable.

The group's order activity was also encouraging with a book-to-bill of 1.4x for the quarter and 1.3x for the year-to-date.

Danny Deep: I'll just add a little more color to Phebe's point on an encouraging book-to-bill. Orders at Mission Systems for the third quarter were their highest ever for a single quarter. And in fact, orders for the first 9 months of the year outpaced any full year in Mission Systems history. Their transition to highly differentiated systems in land and air, space, cyber and intelligence as well as maritime and strategic systems continues to bode well.

Phebe Novakovic: So, let's turn to guidance for 2026. At the outset, I want to review what we have told you to date. In January, we told you to assume an EPS range of $16.10 to $16.20. In April, our updated guidance for 2026 was an EPS range of $16.45 to $16.55. In July, we increased that to an EPS in the range of $16.80 to $16.90. In light of our performance in the third quarter and year-to-date, we once again increased our forecast to between $17.20 to $17.30 per diluted share, almost 7% higher than we anticipated at the beginning of the year. This contemplates revenue between $56.5 billion to $56.8 billion and operating margin around 10.5%.

You've already heard Kim's commentary about our estimates for cash flow for the year and interest expense. We do not plan to update segment guidance. As usual, we will provide our forecast for 2027 in January after our planning process has concluded. So, to wrap up, we go into the fourth quarter coming off a very strong year-to-date figures, and we feel good about the potential for the full year. So, on a personal note, before I hand over the call to Danny and Kim to answer your questions, I would like to thank you all for the collaboration over the last 14 years.

I have appreciated your rich understanding of the sector, your willingness to engage and your objective assessments. While I will remain as Executive Chair to work with Danny, his team and the Board, this is my last earnings call. I wish each of you the best in the future. Nicole, back to you.

Nicole Shelton: Thank you, Phebe. As a reminder, we ask participants to ask 1 question and 1 follow-up so that everyone has a chance to participate. Operator, could you please remind participants how to enter the queue?

Operator: [Operator Instructions] Your first question comes from the line of Seth Seifman of JPMorgan.

Seth Seifman: Phebe, I just want to say congratulations and all the best. Thanks for everything over the years. Maybe starting off in Marine, the margin was quite strong in the quarter, highest margin for a few years. When we think about the signing of the contracts, the impact that, that may have had versus the sustainable level of margin and whether we can think of this as an upward trajectory that maybe even [indiscernible] in 2027. What kind of takeaway should we have from this quarter?

Danny Deep: Yes. Let me take that. So, the margin in the Marine Group is really a function of the strong operating performance across all of the shipyards, and particularly on Virginia Block IV, where we're coming to the end of that delivery order, and we should expect to deliver that last boat in the next several months. And so because of the strong performance, we actually had a onetime cumulative catch pickup on the booking rate, which spiked the margin a little bit in the quarter. But when you isolate for that cumulative catch pickup, the performance in the Marine Group was still better this third quarter than it was in the first half of the year.

And I think that is a demonstration of the continued performance in operations across the group. I think the awards -- the most recent awards really didn't have any impact or any significant impact on the margin rate in the Marine Group. And so I think as you think about it looking forward, I would isolate for that onetime cumulative catch booking rate on Block IV, which is a good thing because it's associated with performance and think about the Marine Group being in that mid-7% range as a baseline with the opportunity to grow from there as we steadily improve performance and output.

Seth Seifman: Great. And then as a follow-up, I know that Mark Burns was at NBAA recently talking about Gulfstream and production rates and the potential to reach 200 deliveries a year. Maybe can you talk a little bit about how you see the long-term multiyear outlook for Gulfstream deliveries?

Danny Deep: Sure. So, you used the right term, and that's delivery. Sometimes we hear the word production. So, our intent is to deliver 200 aircraft in 2030. And obviously, in order to do that, we're going to have to produce more than 200 aircraft in 2029. And so when you think about output, think about it in terms of manufacturing, completions and delivery. And we have the production and the workforce and the facilities to produce 200 aircraft. And as on that path there, we expect and are certainly hopeful that our suppliers will be able to keep up.

To go beyond 200, we'll have to invest in more facilities and equipment, and we're prepared to do so if the demand dictates that.

Operator: Your next question comes from the line of Peter Arment of Baird.

Peter Arment: I'll echo Seth's comments. Phebe, thanks for all the support over the years. Appreciate it and best of luck. And Danny, congrats. Maybe Danny, maybe could you talk a little bit about your opportunities in supporting, kind of, as a supplier with the missile framework agreements. I know that there was an announcement in August, kind of, looking to support that. Could you give us a little more color on the opportunity for GD and OTS there?

Danny Deep: Yes. So, we are a subcontractor to a number of the missile primes and are on a number of the missile systems. At Ordnance and Tactical Systems, we produce motor cases and actuators, and at Mission Systems, we produce a number of the components that go into the guidance systems. We are not a huge part of those missile framework agreements. We're in the single digits and the low single digits, but an important piece of it. And we are in the process of ramping up and supporting that entire framework.

Peter Arment: Got it. And just as a quick follow-up, just switching back to, kind of, Seth's comments around Marine. Is there a point where you guys have given us a lot of data over the last year around earned hours worked up and material flow improving. Is there a point where we're getting more mature in Columbia where we start seeing improved milestones there? Any color there would be helpful.

Danny Deep: Yes. We are -- on both Columbia and Virginia, I think when we look at our output and throughput, we're up 30% this year versus the same time last year. We continue to see efficiency gains across those platforms. And we brought on a new -- a large number of new shipbuilders, 6,000 new shipbuilders at Electric Boat alone, will be at 8,000 by the end of the year. And as those new shipbuilders get more and more experience, we'll continue to see efficiencies accelerate. So, we're very pleased with where we are on Columbia specifically and also Virginia.

Operator: Your next question from the line of Ken Herbert of RBC Capital Markets.

Kenneth Herbert: Congratulations, Phebe and Danny. I maybe just want to start on the balance sheet, if I could. It's obviously in a great spot. It sounds like CapEx is running higher to support the growth. Can you just talk about how we think about CapEx in '27 and '28, how we think about where you're comfortable with the leverage and maybe any step change in capital allocation considering the strong balance sheet?

Kimberly Kuryea: I'll take the CapEx portion of the question. And as it relates to 2026, we have seen an increase thus far, and we expect that the fourth quarter, we have a significant ramp expected in the fourth quarter as a lot of those projects continue, and we'll see if we can spend what we intend to spend in the fourth quarter. Some of that could slip over into 2027, but we intend to keep on track there. In terms of 2027, I think the CapEx will probably stay elevated, although we haven't come completely through our planning process.

So, I think you would expect that we would be spending again probably in this range in 2027, but we'll hone that in as we go through the planning process. The -- I think your other question was related to leverage and capital allocation. I mean, we continue to support the dividend as it relates to share repurchase, and we are repurchasing shares enough to cover dilution at this point in time. So, I think that's where we are there.

Kenneth Herbert: Great. And just as a follow-up, can you just talk -- I know you've been spending to support, obviously, the ramp in Virginia and Columbia. But how do we think about spending specifically within the Marine segment over the next few years? And are you fully capitalized to support the delivery growth expected in the next 3 to 4 years?

Danny Deep: Yes. Look, I think as Kim said, we've been spending in the Marine Group for the last decade and certainly more pronounced even in the last 5 years. And I think we'll continue to invest in anticipation, and we have been anticipating this volume increase, specifically on the submarine side of things. And so over the next few years, we will continue to facilitize and invest in capacity. We'll invest in productivity and automation, and we'll obviously invest in workforce development and training. And that won't continue forever, but it will certainly continue for the next few years.

Operator: Your next question from the line of Ronald Defstein of Bank of America.

Unknown Analyst: This is Reid on for Ron. I was just wondering if you could provide a bit more background on the growth in the technology segment and, kind of, how we should think about growth going forward between GDIT and GDMS?

Danny Deep: Yes. So, I think both GDIT and MS have done very well and had a very strong quarter and year-to-date growth. I think fourth quarter will be a little down, and that speaks more to the strength of the third than any particular issue in the fourth. But overall, when you look at '26 as compared to 2025, we'll be up in the mid-single digits. And I think you can expect that, that growth will be sustained over time. I think the relative contribution from each of those groups to the growth will stay relatively consistent for the foreseeable future.

Operator: Your next question comes from the line of Myles Walton of Wolfe Research.

Myles Walton: Phebe, congratulations on the long tenure and for trying to keep all our verbal IQs as high as we can get. In terms of a prosaic question, on the services growth, what was that? Was that double digits? And was there any test aircraft that went out the door in Gulfstream this quarter?

Danny Deep: Yes. Services grew in the Aerospace segment in both Gulfstream and Jet Aviation. At Gulfstream, it was significantly higher than it was in the third quarter of last year and a little bit less so sequentially, but still larger than it was in the previous quarter. At Jet Aviation, it was across the board and against all comparable quarters. And the services business from a -- it will continue to grow as the fleet expands, and we're very happy where that is. In terms of -- and I'm not sure that you asked this, but I'll answer it anyway in terms of how it is a contributor.

It's -- from a margin standpoint, it's very similar to our new aircraft and so, I wouldn't -- it's not -- I wouldn't call it accretive. It's kind of too close to call, and I wouldn't certainly describe it as dilutive, but it came from across the portfolio.

Myles Walton: Okay. Fair enough. And in terms of that ELS growth of 28%, can you just give us a benchmark as to what portion of combat is ELS at this point? I know it's 4Q-loaded. Is that level of growth expected to continue?

Danny Deep: Yes. Look, I don't have the exact numbers, but historically, Land Systems has been about half and OTS has been the majority of the remaining half and ELS has been whatever is left over. They're starting to become a pretty significant portion. When you think about the international portfolio in combat, of which ELS is a big part of, it almost represents 50% of the entire portfolio. And that half of the portfolio, about 80% of that is direct and the majority of that comes out of ELS.

Operator: Your next question comes from the line of Doug Harned of Bernstein.

Douglas Harned: Going back to Gulfstream. And first, I do want to congratulate Phebe. It's been -- it's hard for me to believe it's been 14 years, but it's been great working with you. And thinking about Gulfstream in that context, these last 2 quarters with pretty amazing book-to-bill, services up. When I take the geopolitical context that Phebe that you had described, how are you seeing customer discussions at this point, if I put the Middle East aside, given the geopolitical concerns, fuel prices, what is the -- what are the drivers now that you're seeing for such high growth?

Danny Deep: So, I'll take that. I think the customer activity in North America and Western Europe and Asia has continued to be robust. And as you mentioned, Middle East aside, still a lot of interest there, but certainly a little bit more cautious in terms of actually placing orders. I think that has continued. And certainly, as it relates to Jet Aviation, even the Middle East has continued to be robust. Fuel prices, really, we have not seen any discernible impact from that perspective on demand. And when we look forward and as -- obviously, as we perform in this current quarter and the entire year.

But when we look forward, we continue to see a fair bit of demand out there and specifically in the markets I mentioned.

Douglas Harned: And, then changing gears a little bit. If I go over to Marine Systems, with the Anduril announcement of Arsenal-2 in Baltimore, which is particularly focused on Virginia-class, how does that fit into the operational planning that you're doing at Electric Boat and that's going on at Newport News? And is this something that will be helpful in terms of improving throughput? Or is it, in a sense, competition? How do you think about that move?

Danny Deep: Yes. Look, for us, we welcome any new entrants into the supply chain for the submarine industrial base. It's critical that we attract them, and I think these large orders help do that. Specifically, as it relates to Anduril, we are very focused on the 4 significant components that they're going to provide us torpedo tubes and air flasks and impulse tanks and auxiliary tanks. And, these are areas where we need additional capacity, and that's what we're focused on with them, getting those items.

Operator: Your next question from the line of Sheila Kahyaoglu of Jefferies.

Sheila Kahyaoglu: Phebe, congratulations on a pretty spectacular career and giving us something to aspire to and always making these earnings calls a bit spicy, so I appreciate that. Maybe, if you can, can you just talk about Gulfstream? I think you developed 4 or 5 new jets over your tenure. I lost track, to be honest. How do you think about Gulfstream's trajectory over the medium term, whatever you're willing to give? And maybe as a follow-up to that and Doug's question as well, the order growth is strong despite the Middle East. Do you think that's competitive win rates or just customer win rates driving the demand momentum?

Phebe Novakovic: So, as you know, as we've talked before, the family of airplanes that we have at Gulfstream, and we are adding to it has been part of a 15-year strategic plan that we believe that investment in platforms that met our customers' needs in speed, capacity, efficiency and comfort would drive demand. And so we have a whole new fleet of clean sheet airplanes in our portfolio. And we're pretty excited about it. And I think that, that transition has been very successful. There has not been a case, at least in business aviation that I'm aware of, where you retire, take the G450. You retire the G450, a very successful high-margin program.

It goes out on a positive earnings basis and is replaced by an all-new clean sheet of airplane, heel to toe. And I think that, that -- the theory of the case back 15, 12 years ago, 13 years ago, I guess, when we came up with this, the theory of the case was new product will drive demand, and we know our customers and we design these airplanes to our customers. So, I think that strategy, you're seeing it now. And it was -- we're pretty excited about it. We're pretty excited about the future of Gulfstream. I'll let Danny answer the other.

Danny Deep: Yes. Look, I think to Phebe's point, the success of this all-new family of aircraft just reinforces our commitment to continue to develop the portfolio and continue to invest in our product lineup, both from a new aircraft standpoint as well as sophisticated projects or sustainment and support. So, we're going to stay on this path.

Operator: Your next question from the line of Gautam Khanna of TD Cowen.

Gautam Khanna: Congrats to Phebe and Danny. I echo the sentiments of others. I wanted to ask about Gulfstream next year. I know you guys talked about the G280, G300 transition. If you could just update us on, kind of, how -- what's your current view on, kind of, the gap on some of the smaller jets and what that might mean for margins just as we start thinking about '27?

Danny Deep: Yes. So, as we -- as the G280 phases out, as I think we've said in previous calls, there will be a gap between that and the G300 that we prefer if we didn't have it, but we have it. That said, we will more than offset the reduction in the G280 volume with additional large cabin aircraft. And as a result, we'll have a more favorable mix, and that will obviously have a positive impact on margins. And that said, even with reduced number of G280s, it will not preclude us from having a better 2027 than 2026. So, again, we're focused on delivering large cabin aircraft next year.

Gautam Khanna: And, just to put a finer point on it, when does that gap begin? Is it after the first quarter? Or do you have a sense for when the last G280s?

Danny Deep: Yes. It goes into, kind of, middle of next year, is when we expect, the G280s will finish delivery. And then we expect the G300 to be certified towards the end of next year and then deliveries will obviously happen after that, and will be somewhat dependent on the situation in the Middle East.

Operator: Your next question from the line of Kristine Liwag of Morgan Stanley.

Kristine Liwag: Phebe, congrats. Phebe, you've already made significant investments in Gulfstream, as you talked about. And, it seems like the business is positioned well for the next decade, maybe even the next 2 decades. And now you've got unprecedented visibility in marine, a record backlog and relative stability across the other businesses as well. So, a great way to hand off the business to Danny. So, I guess when you think about the business where you're in a strong position of growth, you've got a strong cash generation. The balance sheet is pristine and in a net cash position.

How do we think about your appetite for adding another leg to the business, even maybe looking at something that the defense tech companies are doing perhaps in low-cost, high-volume equipment? And also, Danny, as you step into the CEO role, are there particular areas of the portfolio where you see opportunities to invest either organically or through M&A that could shape GD's next phase of growth similar to what Phebe did?

Phebe Novakovic: Well, let me just emphasize first principles. We invest where we believe that we can get a good return and provide products for our customers. So, we have invested, as you noted, over the last few years in both the defense businesses heavily and the defense businesses in Gulfstream because we anticipate growth. And that growth is materializing. It will continue to increase in some areas, and we'll continue to invest in our business as appropriate. We have never discussed M&A, and so we're not going to go there now. I would just say that we are very, very careful. Companies that get outside their lane into adjacencies, your ability to manage risk decreases and the risk increases.

So, we are very cautious with how we spend our precious capital. And when we do, we're looking for a strong return and then our ability to meet our customers' needs. I doubt that will ever change. That's a core value.

Danny Deep: Yes. I really don't have much to add to that. I think, Phebe captured the essence of how we thought about capital allocation, specifically around acquisition, and I think you can expect that to continue.

Operator: Your next question from the line of Andre Madrid of U.S. Bancorp BTIG.

Andre Madrid: Congratulations, Phebe and Danny. We were discussing technologies. I want to go back there. It's been -- I think 2021 was the last year we saw double-digit margins there. You provided some color on how we should expect the business to trend on the top line. Could you maybe talk about some of the moving pieces that might get us back to double digits at that segment and maybe talk about that in reference to GDIT and Mission Systems more specifically?

Danny Deep: Look, I think the pieces of this portfolio, as I mentioned, are going to stay pretty consistent. And while they'll continue to grow. In the case of Mission Systems specifically, really had a strategy of developing highly differentiated products, electronic systems that can be proliferated across a large number of systems. And part of that strategy has been to develop those systems and those electronic systems where the threat environment has dictated and where we see strong demand and often ahead of need, and I think that served us well. And so we'll continue to see them invest and grow in the areas that they're focused on and think of subsea warfare and space and intelligence and cyber.

And in case of GDIT, I think, done a very good job in this environment that we've found ourselves in over the last 24 months or so in terms of adjudications of the ability to still grow the portfolio at a time when RFPs and the pace of activity in that space has slowed down significantly. And they've done that because they've invested in mission-ready technologies and been able to grow on contract work with the use of OTAs and a bit of a pivot towards more fixed price contracting. So, I think between those 2 things, we're on a path to continue to see good growth in the overall portfolio and pretty solid margin growth as time goes on.

Andre Madrid: Got it. That's very helpful. And then maybe pivoting to Combat Systems. We dug in pretty deep on Land Systems and specifically ELS. But I want to discuss maybe what some of the milestones we should be looking out for on the OTS side would be?

Danny Deep: Yes, there's a lot of stuff happening in the munitions world. We are -- I think as we've talked in the past, investing in solid rocket motor capability to support Lockheed Martin in this instance. And we -- that facility is going up per plan, and we expect that to be qualified and producing solid rocket motors in 2028 over at Mesquite. On the artillery side, we are executing the revised projects per the plan that we have with the Army. We expect to be producing test rounds next year and in production in early '28. So, those are a couple of major milestones.

And then I think we've talked a little bit about our support to the missile primes, and that's happening as we speak, and we are hitting the numbers that we're committing to over there. So, there's a lot of stuff happening in the munitions group that points to a very bright future for them.

Nicole Shelton: I think we have time for one more question.

Operator: Your next question from the line of David Strauss of Wells Fargo.

David Strauss: Phebe, congrats on your legacy and I think setting up Danny for a lot of success here moving forward. Danny, just trying to put a bit of a finer point on the growth that we could expect for Marine from here. If I just look on average over the last couple of years, you've seen about $2 billion of, kind of, annual revenue growth in that business. Is there any reason to think that into next year that we wouldn't see a similar just kind of absolute level of revenue growth?

Danny Deep: Yes. I mean, obviously, Dave, we'll provide guidance in January, but you pointed it out. I mean, we have seen, I think, explosive growth by any definition of the word over the last couple of years. And 2026 will grow close to $2 billion -- $2 billion over 2025. And we're starting to get into the law of large numbers here where it's difficult to add that sort of number on top of what we currently are. We will continue to grow, however, and we fully expect to and not just at Electric Boat, but also at Bath Iron Works and at NASSCO.

So, I think you'll hear more about this in January, but I think the broad theme is that we will continue to grow, maybe not quite at this pace, but we'll certainly see continued robust growth in the Marine Group.

David Strauss: Okay. And over on the Tech and Combat side of things, just given the strong bookings and the backlog growth we've seen this year, is there a reason why growth in those businesses wouldn't accelerate a bit from here, I guess, from, kind of, the mid-single-digit rate that we're seeing out of those businesses this year?

Danny Deep: Yes. So, Combat is interesting in that we have European Land Systems that has grown when you look at it compared to last in 2025, the same quarter at 28%, and Ordnance and Tactical Systems at 16%. And that's been offset a little bit by this transition that Land Systems is going through in terms of a larger share of development programs in the portfolio. And it speaks to the strength of the Combat portfolio in its totality that the largest part of the Combat group is in this transition phase, but yet still able to grow. And it will grow in the high single digits in '26 as compared to '25.

And I think you will continue to see it grow quite robustly in that same sort of range. But again, in January, we'll have more to say about that. But we are converting the backlog that you see in this record backlog that you see as we speak, and that will continue to happen and accelerate.

Operator: There are no further questions at this time. I will now turn the call back to Nicole Shelton for closing remarks.

Nicole Shelton: Thank you. And thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the third quarter earnings release and highlights presentation. If you have additional questions, that can be reached at (703) 876-3152.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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